BlackBerry will outsource the development and design of its smartphones, a product category it helped pioneer and popularise, as the Canadian company bets on software and managing rival devices.
The company's shares rose about four percent as investors welcomed a further shift away the money-losing handset business, where BlackBerry went from being a market leader to trailing far behind rivals like Apple.
The news came as the company reported a sharper-than-expected drop in quarterly revenue.
While some outsourcing of manufacturing had already occurred, the company will complete a full transition out of the hardware business by the close of the fiscal year ending in February, chief executive officer John Chen said.
It will instead take a royalty on devices sold by partners.
The company signed a deal with Indonesia's BB Merah Putih to manufacture, distribute and promote its branded devices in that country, its largest market for handsets. BlackBerry said it was also in late-stage discussions for a similar deal in China and working on several India initiatives.
"This is an entirely sensible decision and probably an overdue one," said IDC technology analyst John Jackson. "Software revenue and the margin profile associated with that is where the focus should have been, and now can be."
BlackBerry said revenue from software and services was US$156 million in its second quarter ended on August 31, compared to US$105 million from the device business.
The company said 81 percent of its software and services revenue in the quarter was recurring, an increase from the prior quarter.
Morningstar analyst Ali Mogharabi said the news was reassuring even though some of the software and services revenue growth came from last year's acquisition of Good Technology.
Excluding US$147 million in charges from its reorganisation and other one-time costs, the company said it broke even in its second quarter. On that basis, analysts had on average expected a loss of 5 cents a share, according to Thomson Reuters I/B/E/S.
Revenue fell to US$334 million from US$490 million, missing analysts' estimates of US$393.75 million.
Blackberry is to stop designing smartphones in-house after 14 years, the company has announced.
Once a market leader, the company has struggled to keep pace with modern handsets produced by rivals such as Apple and Samsung.
In May, the company's chief executive, John Chen, said he would know by September whether the hardware business was likely to become profitable.
Now, Blackberry says it will outsource hardware development to partners.
But the company has not yet confirmed when any further Blackberry phones will be released.
"I always wanted to make sure that we keep having the iconic devices," Mr Chen told BNN.
"I just need to find a way to be efficient and be able to make money. I think we found the model."
Blackberry has a mixed record in the mobile phone market
The company said it sold about 400,000 smartphones in its second quarter - fewer than the previous three months.
"Blackberry can't keep producing its own phones indefinitely just to serve a small subset of its clients addicted to its home-grown devices," said Ben Wood of the CCS Insight consultancy.
"Blackberry had made no secret of the fact that it might shut down its own phone-making business. Pushing it out to a third party is a sensible solution - but any manufacturer making Blackberry branded devices will ultimately face the same challenges."
'I said a year'
Mr Chen has been candid about the future of Blackberry's handset business, saying he would consider closing the division if it could not become profitable.